The UN climate conference in Marrakesh can create history, say Stewart Langdon and Dan Wells
It would be easy to become depressed about the outlook for climate policy. After all, the topic barely warranted a mention during the recent US election, except for occasional disparaging remarks from the now President-elect. But at the ongoing UN climate conference in Marrakesh, delegates are attempting to build upon the success of last year’s event in Paris, which delivered a watershed moment in the form of a long overdue agreement on emissions. The coming days could be remembered for an equally enduring landmark if the parties choose to accelerate a quiet revolution that is radically reshaping energy systems around the world.
Globally 2.2bn people have no access to electricity or endure highly unreliable service and rely instead on a toxic mix of kerosene, paraffin, candles and wood. For a third of the world’s population energy is dangerous, erratic and ruinously expensive. Lighting can cost a poor household more than a hundred times what it does in rich countries. 4.3m people die each year from the effects of pollution from cooking alone.
Reliable power is a pre-requisite for a quality of life beyond basic subsistence. The industrial revolution catapulted the West to a vast improvement in life expectancy, public health and educational standards. Those advances were enabled by an energy revolution: the newfound ability to extract and utilise fossil fuels on a large scale.
The developing world is now experiencing something similar, driving long-term growth in energy markets across Asia and Africa. By 2040 those two continents will be responsible for 56% of global energy demand between them, accounting for virtually all of the 30% growth between now and then. That upward surge is a reasonable expectation for two continents that will by then be producing 62% of the world’s GDP, compared with only 37% today.
Underpinning all of this is a dramatic convergence in global living standards driven by the rise of 4 billion low income people out of poverty and into the consumer classes, finally matching long-standing aspirations with newfound spending power. In 2010 2.4bn people earned more than $10 per day (the rough proxy for having discretionary income). By 2025, McKinsey forecasts this to increase to 4.2bn. Poverty is falling rapidly as a result and it is vital that this economic development is powered by low-emissions energy.
Thus, the devastating consequences of inadequate access to energy and climate challenge come hand-in-hand with one of the great business opportunities of the 21st century: providing energy and other essential services to the world’s emerging consumers.
In 2009 developed nations pledged to provide $100bn a year by 2020 to help poor countries mitigate the impact of climate change. Mobilising capital for business models that provide renewable energy access to the world’s poor could simultaneously combat energy poverty and climate change whilst investing in the big energy markets of the future. How should this be done?
An argument persists that only centralised fossil fuel generation can provide the energy resources required to lift people out of poverty on a meaningful scale. This ignores the transformative impact of years of innovation in renewable energy.
Since 2010 the price of solar technology has plummeted by around 80%, radically improving its economic viability in low-income countries and removing the supposed trade-off between development and clean energy. Similar reductions in the cost of energy storage are solving the issue of intermittency. Crucially, solar technology is fundamentally modular: it works at any scale, rendering debates about centralization redundant. Solar plants can also be developed and built more quickly than fossil-fuel plants.
As a result, clean and reliable energy is changing the underlying topography of electricity infrastructure, moving towards distributed, low-carbon systems. Consumers in Africa and Asia can now produce their own power, enabling them to actively manage their own relationship with energy for the first time. Welcome to the age of the emerging producer-consumers (or prosumers). Innovative new businesses are seizing the opportunity this presents.
At the individual level, companies such as D.light and Greenlight Planet are taking their customers on a journey up the energy ladder from solar-powered lanterns to home systems, which include radios, mobile charging and televisions. Both have reached real scale (20m customers between them) and continue to grow quickly and profitably. But connectivity remains critical: electricity grids still have a fundamental role to play in future systems, although increasingly as “stock exchanges” for electrons, rather than simply as wires to send power in one direction.
The Marrakech conference could supercharge this revolution by mobilising capital for investment in solar energy infrastructure at all scales. The world would reap substantial benefits: the moral imperative of improved energy access; the climate impact of ensuring the rise of billions of emerging prosumers is powered by renewable energy; the economic benefits of smart, long-term investing. That would be a legacy to rival Paris.
Daniel Wells is a Partner at Foresight Group.
Stewart Langdon is a Partner at LeapFrog Investments.